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The interest rate in Japan is 0.5% and the interest rate in the US is 4.5%. The spot exchange rate is 100 per dollar and
The interest rate in Japan is 0.5% and the interest rate in the US is 4.5%. The spot exchange rate is 100 per dollar and the one year ahead forward rate is 98 per dollar. What is the profit made via covered interest arbitrage if you start by borrowing 1 million yen and investing in the US market? Assume borrowing and lending rates are identical. State the profits in dollars.
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